Crude Realities: Understanding oil prices and how to trade them
Jorell Low, Dealer | Contract for Differences
Jorell graduated from the National University of Singapore with a Bachelor’s degree with Honours in Business Administration (Accountancy). He is passionate about trading and enjoys exploring new strategies while staying up to date with market trends. He believes that with the right mindset and discipline, anyone can become a profitable trader.
Crude oil is one of the most actively traded and closely watched assets in the world. More than just a commodity, oil is deeply intertwined with supply-demand dynamics, geopolitics, market speculation, and macroeconomic trends. This makes it a key driver of price action across currencies, equities and inflation expectations.
To CFD traders, oil offers a rare combination of liquidity, volatility, and macro sensitivity, making it both a high risk and high opportunity market. Successful trading requires understanding what truly moves oil prices.
Why Oil matters to CFD Traders
Oil isn’t just the fuel for cars and factories; it’s a barometer of the global economy. From transportation and manufacturing to energy and agriculture, fluctuations in oil prices impact almost every major industry and financial instruments.
Key benefits of trading oil CFDs:
- High liquidity – consistent trading volume leading to tighter spreads
- Strong volatility – frequent price swing creates opportunities, ideal for short-term trading
- Macro exposure – oil reflects major economic trends like inflation, growth, geopolitics and more
- Directional flexibility – CFDs allow for both long and short positions
- Access to global benchmarks – trade major oil standards including Brent Crude and WTI crude
For traders looking to capitalise on real-world events, oil CFDs offer one of the most direct and accessible ways to engage with macro-driven price action.
What affects oil prices?
1. Supply side factors
a) OPEC+ (Organisation of the Petroleum Exporting Countries) production quotas: OPEC countries, along with Russia exert significant influence over global oil supply through production quotas. For example, on 3 Apr 2023, a surprise OPEC+ cut of one-million-barrel per day led to a sharp 6% rally in oil prices in a single day [1]. Less supply often causes prices to increase, vice versa.
Source: TradingView [10]
b. US shale production: The US, a top oil producer due to shale drilling, are market driven; they ramp up output when prices are high and cut back when prices fall. According to US Energy Information Administration (EIA), US oil production surpassed 13 million barrels a day in late 2023 (after the OPEC surprise cut) which impacted global supply balances [2].
c. Inventory and storage capacity: inventory levels provide clues about market imbalances, signaling whether the market is oversupplied or undersupplied. Weekly inventory reports from the EIA [3] on Wednesdays and American Petroleum Institute (API) [4] on Tuesdays are useful gauges for traders. Rising stockpiles usually signal an oversupplied market and bearish sentiments on prices, vice versa. Price reactions to these reports are often immediate.
2. Demand side Factors:
a) Global Economic growth: Oil demand correlates strongly with global GDP growth. A booming economy drives energy demand in transport, manufacturing, and industrial sectors. During China’s reopening in early 2023, oil demand surged which pushed prices higher due to expectations of increased consumption [5]. Conversely, during the COVID pandemic, global lockdowns slashed demand, briefly sending prices in the negative in Apr 2020 [6].
Source: TradingView [10]
b. Energy transition and alternatives: the growing shift to renewable energy and electric vehicles introduces long-term structural headwinds to oil demand, particularly in developed markets.
c. Inflation and interest rates: Oil prices often rise during inflation because it’s priced in USD and often used as a hedge, a risk management strategy, for real estate. However, higher interest rates can suppress demand by slowing economic growth. Traders can take note of central bank actions like Federal Rate hikes, inflation data as indirect drivers of oil demand.
Geopolitical risk and global events
Oil markets are extremely sensitive to geopolitical instability, even the threat of a supply disruption can trigger price spikes due to risk premiums. Key regions to watch out for are the middle east (Iran, Iraq, Saudi Arabia, Israel), Russia, Ukraine, and the Strait of Hormuz choke point where around 20% of global oil passes through. For example recent Middle East conflict between Israel and Iran drove oil prices up due to fears of oil supply shortages but a US-brokered ceasefire eased the spike, immediately reducing prices around 6% [7]. Therefore, staying informed on global news can offer traders an advantage.
Source: TradingView [10]
Currency Correlation: The role of the US Dollar
As oil is traded globally in USD, a stronger dollar makes oil costlier in other currencies, which reduces global demand and lower prices. Tracking the US Dollar Index (DXY), an indicator for Dollar strength, can help traders spot trades. Traders can also check the CME FedWatch Tool [8] for the probability of a federal rate change to predict the strength of the Dollar and impact on oil prices. A rate cute typically weakens the Dollar, reducing its demand, causing investors to shift their capital to other areas for better yields, such as oil.
Source: CMEGroup [8]
Speculation, Sentiment and Positioning
Oil is a favourite among institutional investors, hedge funds and algorithms. Large speculative flows can drive prices beyond fundamentals in the short term. Traders can watch the Commodity Futures Trading Commission’s (CFTC) Commitment of Traders (COT) [9] report, released on Fridays, for the changes in speculative net positions on oil, to gain a sense of the institution’s bias and direction.
Oil trading using Contracts for Difference (CFD)
CFDs allow traders to speculate on oil prices without owning the underlying asset. This derivative structure provides access to both WTI and Brent crude benchmarks with advantages such as:
- Leverage to control larger positions with smaller capital
- Short selling opportunities to profit from falling markets
- 24/5 access overlapping with global trading hours
- No physical delivery obligations
Conclusion
Oil is a dynamic asset class influenced by a complex mix of macroeconomic, geopolitical and speculative forces. By staying informed on these forces, and applying technical analysis and risk management, you can turn oil’s volatility into opportunity. Ready to start? Explore oil CFDs and stay updated on market trends with us.
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Reference
[3] https://www.eia.gov/petroleum/supply/weekly/
[4] https://www.api.org/products-and-services/statistics/api-weekly-statistical-bulletin
[6] https://www.eia.gov/todayinenergy/detail.php?id=46336
[8] https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
[9] https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm
[10] tradingview.com
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